Are you selling your house and you have not yet decided on the asking price? The best way of arriving at a realistic selling price is by looking at the selling prices nearby houses like yours have sold for. These are called comparable sales or comps. Having at least two or three recent comps will help you price your home at market value. Homes priced right sell faster at a higher sale price.
Say for example you are selling a two story house in Dublin, which you recently upgraded with a kitchen makeover. You would need to make at least two other comparisons in the neighborhood, or areas in the vicinity. Say, you get two houses that are almost similar to yours. One is similarly sized to yours, has had recent repainting, and sold for $860,000 while the other is slightly larger than yours and sold for $890,000. How do you price for your house based on the two finds?
The price would be between $860,000 and $890,000 considering your house had a kitchen makeover which is more expensive than a repainting. This is justifiable to the buyer as the size does not justify an $890,000, but the upgrades justify a price higher than that of the similarly sized home.
What makes good comps?
To make a good comparison, you have to base your comparison on a number of factors:
• Date of sale
Using the figures of homes sold two or three years ago will provide an inaccurate picture of the price trends in the recent past. Even six months is a long time in a vibrant and flexible real estate market. After the sub-prime mortgage meltdown of 2008-2009 buyers will rarely look at figures older than 6 months.
For accuracy and real-time information, real estate brokers as well as appraisers use the MLS (Multiple Listings Service) database of listings for comps. The MLS is accessible by licensed members only.
You cannot compare home prices in Boston with those in San Francisco. This would be a very inaccurate comparison as it does not take into account amenities available, the weather, the prestige of neighborhoods, and other factors that are not shared by the two locations. It is more conceivable doing a comparison of homes in the near proximity. The ideal proximity is a ¼ mile to ½ miles within the property you are trying to sell.
• Home size, style and age
Different homes styles attract different types of home buyers with different financial ability. A three bedroom apartment unit is not comparable to a three bedroom country house. The square footage, number of rooms, and material of construction have to be comparable. The ages of the houses in comparison should be close. If you are comparing houses that are both 40 years old, they are both likely to have tile roofs whose durability is longer. This comparison is better than doing against a shingle-roofed house.
• Features and amenities
You will have to account for the amenities of each home you include in the comparison. Has the home had a recent paint facelift? Is there a bedroom and bath on first floor? Look at the amenities in the neighborhood too like schools, playground, swimming pool, and gym or tennis court. These amenities in the neighborhood can increase the value of a similar home.
• Home condition
Comparable homes should be in similar conditions. It would be hard to compare a foreclosed home that has been stripped with one that has a family living in it and having all appliances and plumbing working properly. This kind of comparison even where houses are similarly sized would be heavily skewed.
• Any deal sweeteners
You have to know if there were inducements that made a home sell for a particular price. There could have been a deal sweetener like seller credits such as cash back or pays buyers closing costs.
Why should you do comps?
The buyer will always want to pay less than what you are asking, while you want to make as much money as possible from the sale. This means that both parties have to negotiate with each side presenting their evidence for the figure they are quoting.
Having good comps help make the listing price more tempting as you can persuade the buyer into believing that what he is getting is the best he is likely to get according to the location, size, style, age, location and amenities of the home. You are very likely to sell your house faster and at a higher price.
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